Good morning, everyone, and thank you for joining us. Today, we're looking forward to taking you through the KMD Brands FY 2026 financial results and outlook, and also providing an update on the significant progress we've made with our Next Level group transformation in our first year of execution. My name is Brent Scrimshaw, and I'm the CEO of the group, and I'm joined on this morning's call by Carla Webb-Sear, our Group Chief Financial Officer. We'll be talking through the presentation lodged on the NZX and the ASX this morning, and unless otherwise specified, all financial numbers are in NZD. I'll begin with an executive summary of today's announcements before Carla takes you through the financial detail of our results. I'll provide a more comprehensive update on our Next Level transformation progress, and then we finish with a trading and outlook update.
Turning to slide four . FY 2026 was a year of significant change for the group, and today represents an important milestone on our journey to creating a stronger KMD Brands. At our Investor Day in September 2025, we launched Next Level, our three-year turnaround strategy created to unlock the full potential of our brands and return the group to sustainable, profitable growth after several years of disappointing performance. I'm pleased to say that we've made significant progress against each of our objectives in FY 2026. All three brands delivered sales growth. We improved gross margin, reduced operating expenses as a percentage of sales, significantly increased underlying EBITDA, and completed major technology and operating model initiatives that the group can leverage for further efficiencies and sales growth. While we're encouraged by the progress made, it's important to acknowledge that this is only the first year of Next Level.
We've created a business with clear priorities and greater alignment across the group, which provide us with confidence as we enter FY 2027. Moving on to slide five. As a management team, we've worked hard to build a high-performance culture, and I'm pleased to report that we have delivered a number of tangible and positive outcomes that have moved the business forward in FY 2026. We reset the product roadmap for each of our brands, accelerating innovation and seasonal flow, and enhancing our performance position within each brand. We also completed the implementation of a number of major technology platforms whilst delivering NZD 27.5 million in cost savings, exceeding our original target. Importantly, we've become leaner and more efficient through improved inventory optimization and a reset of our operating models in the U.S.A. for Rip Curl and in Europe for Kathmandu. Moving on to slide six.
FY 2026 demonstrates that our Next Level strategy is already translating into measurable and positive financial outcomes. Group sales for the year increased by 6.5%, or more than NZD 60 million in additional revenue to NZD 1.053 billion. Gross margin improved by 120 basis points to 57.7%, reflecting our product mix changes and improved marketplace management execution. Operating expenses as a percentage of sales improved by 110 basis points, and underlying EBITDA also increased 138% to NZD 42 million. Most importantly, our improved profitability was achieved while strategically investing in future growth and strengthening our operating foundations. There's still significant work ahead, but the progress achieved during 2026 confirms our path forward. Our brands continue to build deep consumer connection, our categories remain attractive, and the potential in front of us is significant. Now I'll hand over to Carla to take you through the financial results in more detail.
Thanks, Brent. I will now talk to slide eight and walk through the group profit and loss for FY 2026 on our statutory results, including the adoption of IFRS 16 leases. For comparability, the impact of IFRS 16 has been excluded from our underlying results, as well as one-off restructuring costs, impairment, SaaS accounting, and notional amortization of customer relationships. Statutory EBITDA was a loss of NZD 323.6 million. On a like-for-like basis, EBITDA was NZD 42 million. Total group sales, as Brent referenced, was up 6.5% year-on-year, with strong growth achieved in both the D2C and wholesale channels. Growth was also supported by the appreciation in the Australian dollar compared to the Kiwi dollar, and on a constant currency basis, total group sales were up 1.7%. By brand, Kathmandu continued momentum with strong D2C sales growth through the year in both Australia and New Zealand.
Rip Curl sales growth was supported by U.S. and European summer sales and growing online channel momentum through H2, along with the appreciation of the Aussie dollar relative to the New Zealand dollar group reporting currency. Oboz grew year-on-year, driven by growth across wholesale and online on the back of new product and investment in the online platform. Gross margin increased 120 basis points above last year to 57.7%, with strong second half performance driven by improved sourcing and input costs, disciplined markdown management, and inclusive of NZD 8 million of tariff refunds received at the end of the year. Underlying operating expenses at constant currency reduced by 0.2%. Despite continued inflationary pressure globally. The year-on-year impact of currency movements on the group can be seen in Appendix 3 of the results presentation.
Underlying EBITDA increased to NZD 42 million from NZD 17.7 million last year, representing, as Brent mentioned, the growth of 137.7%. Underlying EBIT improved to NZD 7.5 million compared to a loss of NZD 18 million in FY 2025. On a statutory basis, the group reported a loss after tax of NZD 414.4 million. The FY 2026 statutory result includes a NZD 462.7 million intangible asset impairment of all three brands. This one-off non-cash item does not impact the day-to-day operations of the business, and as such, has been excluded from underlying results. In reference to the company's trading update in July, sales in the last two weeks of the year were particularly strong, aiding the group to deliver sales and EBITDA results above the guided range from the trading update to the week ended 19th of July 2026.
Drawing your attention now to slide nine, and looking more closely at quarterly sales trends over the last two years by brand. You can see from these sales charts that quarterly sales results have been mixed, reflecting global market conditions, albeit on an overall improving trend. Rip Curl continued to grow despite softer consumer conditions in the second half, a more challenging wholesale market in Europe. Kathmandu delivered strong growth across every quarter, finishing the year with a fourth quarter of 9.4% growth. For Oboz, sales accelerated as new products were launched and wholesale performance improved. Online sales accelerated with e-com sales up 30% year-on-year in the five months following the Shopify launch. Quarterly growth was influenced by product and shipment timing, with Q2 benefiting from the earlier shipment of new season product, creating a corresponding impact in Q3.
As flagged, Q4 returned to strong growth as forecast with fall/winter 2026 product launching in market. Turning to slide 10. Digital remains one of the most significant long-term growth opportunities within the group. Online sales grew 9.6% during FY 2026, and now represents approximately 15% of group direct-to-consumer sales. Growth was strong across all three brands and supported by continued investment, including the migration of Rip Curl and Oboz onto the Shopify platform and a successful trial of ship from store. Both of these investments paid immediate dividends and sales uplift and will continue to do so into FY 2027, evidenced by early FY 2027 sales results. Moving to the group balance sheet on slide 11. Group inventory balances reduced for the full success system year. On a constant currency basis, inventory for July 2026 was NZD 240.3 million.
The reduction was driven by a net 10 less stores, the wetsuit factory wind down, and delays in handing over goods due to weather-induced port conditions. In terms of aged inventory and mix, inventory obsolescence provision represented 1.5% of gross inventory, 70 basis points below July 2025. The group announced prior to year-end the planned divestment of the Southeast Asian manufacturing facility with a phased production wind down and scale up at a third-party facility over the next 12 months. The intention is to realize value from the sale of land and buildings and working capital release. The land and building has been reclassified as held for sale on the balance sheet. Intangible assets reduced at July 2026 due to a NZD 463 million impairment charge across all three brands, goodwill, and brand assets.
The impairment reflects the group's year-end intangible asset impairment assessment, which involves forward-looking assumptions in the exercise of judgment. In making the assessment, the board took a conservative view having regard to the current macroeconomic environment, expected trading conditions, and the company's market capitalization. The impairment is a non-cash accounting charge and does not of itself affect the company's cash flow, banking covenants, or day-to-day operations. Right of use asset and lease liabilities reduced during the year, driven by a reduction in store network. Interest-bearing liabilities included the impact of the weakening New Zealand dollar year-on-year with a constant currency impact of NZD 7.4 million. Moving to slide 12.
Net working capital as a percentage of sales was elevated in July 2026 compared to the prior year due to lower trade and other payables as a result of changes in phasing of payment timing as part of overall trading term negotiations with selected suppliers. Pleasingly, stock turns improved from 1.65x at July 2025 to 1.76x at July 2026. The group had a net debt position of NZD 48.1 million at July 2026, and an improved leverage ratio of 1.2x following the equity raise compared to 3.3x in the prior year.
The group updated the market in July, estimating a net debt range of approximately NZD 63 million-NZD 66 million at the end of July 2026, and was expecting net debt to be higher due to changes in phasing of payment timing and investment in additional working capital to secure inventory ahead of potential supply chain disruptions.
The better than guided net debt position was driven primarily by better than anticipated trade in late July and all expected tariff refunds being received ahead of close. Moving to slide 13, which provides a walk of net debt from July 25 to July 26, and a maturity summary of the group's facilities. The group refinanced its existing syndicated debt facility on June 26, 2026, with a new facility term of 2.5 years, providing the group funding through to October 1, 2028. The new facility continued to build on the company's previous sustainability-linked loan structure, includes a NZD 43 million tranche maturing on June 30, 2027. The total facility as at July 31, 2026, was NZD 195.1 million. The group confirmed that it complied with all banking covenants as at July 31, 2026.
The new facility included an additional working capital component that was unavailable until key milestone covenants were met. Subsequent to balance date, the group provided lenders with an independent review report on underlying forecasts to satisfy the FY 2027 FCCR covenant milestone. Subsequent to year-end, the multi-option syndicated facility increased to a total facility of NZD 205.2 million. Turning to slide 14, cash flow. Net loss after tax of NZD 414.4 million includes the impact of restructuring payments as well as non-cash impairment charges. In April 2026, the group completed a NZD 65.5 million equity raise to strengthen its balance sheet and liquidity position, generating NZD 61.9 million net of costs. Changes in net working capital cycle have impacted cash flow year-on-year, and management remains focused on driving positive operating cash flow by reducing inventory and net working capital into FY 2026.
No dividend was declared in the current year as a result of operating performance. Moving on to slide 16. Kathmandu sales grew 11.1% year-on-year to NZD 402.3 million, despite a net reduction of four stores. Stronger H1 sales momentum continued into the second half, with growth in all quarters and Q4 pleasingly, as we've mentioned, closing at 9.4% year-on-year. Kathmandu had strong sales across both Australia and New Zealand. On a same-store sale basis, including online, Kathmandu sales increased 8.2%. Online sales increased by 9.6% to NZD 57.1 million, comprising 14.3% of direct-to-consumer sales. Kathmandu's gross margin decreased 40 basis points year-on-year due to product mix change and a focus on selling through aged inventory in the first half, and managing competitive promotional intensity during that period.
Second half gross margin delivered 60 basis points improvement year-on-year, despite being impacted in the fourth quarter by unseasonably warm weather on the east coast of Australia. Underlying operating expenses reduced year-on-year on a constant currency basis, improving operating leverage following a strategic cost reset and ongoing cost discipline. Pleasingly, Kathmandu returned to positive earnings in FY 2026, and underlying EBITDA was NZD 16.1 million up from an EBITDA loss of NZD 1.3 million in the prior year. Turning to slide 17. Rip Curl total sales were up NZD 3.8% year-on-year. Apologies there. Aided by the year-on-year movement in exchange rates used to convert global sales to New Zealand dollar reporting currency. On a constant currency basis, Rip Curl total sales were down 1.2% year-on-year. Wholesale sales increased 5.5%, with particularly strong demand in Europe.
Within the direct-to-consumer channel, online sales delivered an increase of 9.1% to NZD 45.5 million. Direct-to-consumer total Rip Curl branded store sales, excluding Ozmosis, was 5.4%, with U.S. retail sales a highlight and European summer sales strong. Ozmosis is a regional multi-brand Australian retail chain owned by Rip Curl since 2011 and has been referenced separately in the commentary this year. On a same-store sale basis, Rip Curl branded stores, excluding Ozmosis, increased 1.3%. Same-store sales for Ozmosis were down 5%. Gross margin increased 110 basis points as a result of favorable channel mix and strengthening exchange rates across key markets and input costs. Underlying operating expenses down year-on-year on a constant currency basis were benefited by the cost reset program, helping to offset growth investments. Despite continued cost pressure, Rip Curl delivered underlying EBITDA growth of 12.2%. Now to slide 18, Oboz.
Oboz total sales were up 3.8% year-on-year, supported by strong product, improving wholesale performance, and continued online growth. Online sales recorded year-on-year growth of 11.8%. Wholesale sales increased 2.8%, with growth led by new product introductions, seasonal flow, and strong at-once sales. Gross margin improved 730 basis points, reflecting favorable channel and product mix, plus one-time tariff refunds of NZD 4.3 million. Operating expenses were tightly controlled with improved operating leverage versus last year. Collectively, these FY 2026 results demonstrate that all three brands are continuing the group's turnaround. I will now hand back to Brent, who will give an update on Next Level transformation.
Thanks, Carla. A lot to get through there. I am on slide 20 now, and will provide some further detail on our progress over the last 12 months. A year ago, we outlined a number of proof points for the delivery of our Next Level strategy, and I am pleased to say that we have delivered significant progress against each of those proof points. On growth and profitability, as you have heard this morning, we delivered 6.5% or NZD 60 million in revenue growth. We reset the strategy of each brand led by a renewed commitment to improving our product through innovation. We restructured our cost base and refined our strategic growth investments whilst over-delivering on our cost savings target of NZD 25 million.
We also acted swiftly to close underperforming stores whilst delivering a step change in store profitability across both Rip Curl and Kathmandu, and I think there is still additional opportunity to capture in FY 2027. Whilst there is further work to do on inventory productivity, we have continued to improve throughout the year with inventory now at a four-year low. We also conducted a business review of non-core assets across the portfolio, and I will provide some more detail on that later this morning. Each of these initiatives are deeply interconnected components of a broader transformation program that aims to create a simpler, more efficient, more profitable, and more agile KMD Brands for the future. On to slide 21, and this is just a high-level reminder of our Next Level strategy and the key deliverables over the next few years.
Our brand and product-led offense is committed to delivering iconic and distinctive product franchises that refresh each brand and are compelling for consumers at the point of sale. Data-driven insight, process, and the introduction of AI tools enable our teams to simplify our business, make better, more informed data-led decisions with a focus on working capital optimization, supply chain consolidation, and integrated business excellence. We are committed to creating a business that consistently delivers sustainable profitability and shareholder returns. Let's dive a little deeper now at each of the brand's strategy and their FY 2026 scorecard, starting with Kathmandu on Slide 22. For Kathmandu, FY 2026 was all about creating and delivering what we call product distinction. Product that's resonating with consumers and is now driving the significant growth momentum Kathmandu has delivered in the first year of its turnaround.
At the heart of this is the return of the XT Series, which reinforces Kathmandu's leadership position in authentic outdoor gear, together with a sharper seasonal product offering and improved storytelling at retail to create consumer excitement. A re-engineered digital platform, as we've spoken about, click and collect, and ship-from-store enablement together with some selected strategic price increases and a more sophisticated marketplace management program also positively impacted the year. Lastly, as we mentioned at the half, Kathmandu's international strategy was reset to a distributor-led business model, and that we see scaling from H2 in FY 2027. Just a click further and look at some fundamental metrics that underpin the transformation of Kathmandu, and I think it really provides some further insight into the health of the Kathmandu brand and in specific unit economics that underpin its most recent success.
In terms of brand demand and basket quality, and despite flat in-store traffic, Kathmandu delivered positive increases in conversion, units per transaction, and average transaction value. Also, each of the focus categories in the business grew, including the largest category of insulation. The improvement in each of these retail metrics together provide confidence in the continued turnaround of the Kathmandu business and of course the consumer response to our new product and growth initiatives. On to Slide 24. The Rip Curl team have also made significant progress to transform the Rip Curl brand for the next generation. Earlier in the year, we relocated global product creation teams to head office in Torquay, and we reset the entire product line plan for Rip Curl with a reduction of more than 2,000 SKUs versus FY 2025. The result is really just coming to market now.
It's the new Search Series collection of product, which launched only a few weeks ago with encouraging early sell-through. We're also proud to announce the next month's global launch of the biggest innovation in wetsuits in, I think, the last 25 years, coming to market for the first time this Southern Hemisphere summer. Lastly, we returned our North American business to profitability, which was an immediate priority for management as we quickly identified the need to right-size the cost base and to balance our footprint between the mainland and Hawaii appropriately for future growth. Moving on to Slide 25, and the Oboz strategy is again centered around a commitment to core product innovation. A fast-tracked entry into the trail running category to impact the market earlier than was originally planned. For the first time, Oboz actually created a brand-new category.
It's called ReWild, a collection from the extensive vault of heritage products that celebrate Oboz's unique trailblazing connection to the Bozeman Trail and Yellowstone. That will also introduce the brand to a new, younger, and style-conscious consumer. Moving on to slide 26. Our shared service functions have also been restructured in FY 2026 as true growth enablers for each of our brands, providing deep functional expertise with maximum efficiency that our brands can leverage for growth. The online channel remains one of the largest growth priorities for the group. While there's more work to do, as you can tell from our result, we've made significant progress in FY 2026 by re-engineering the group's digital capabilities.
After several years of planning and capital investment, major milestones were also completed in technology and systems with Rip Curl moving on to the group ERP platform, D365, together with Dayforce for human resources management. This completion now provides a consistent and stable platform across the group to leverage in 2027 and beyond. Our focus is also about improving overall inventory management, as I've mentioned, together with its mix productivity. We trialed the introduction of AI technology to help improve our forecasting, buying, replenishment, and allocation process. This has allowed us to improve availability for customers whilst reducing working capital intensity. Our objective is to continue to improve inventory turns, as we've done in FY 2026, with the right mix of stock position to drive stronger returns on invested capital. FY 2026 has also been a year of action.
We made significant and deliberate changes across the group to immediately reshape the group's cost base, while at the same time recognizing that we need to invest in a responsible way to fuel future growth. We committed to a NZD 25 million savings target in FY 2026 and ultimately delivered NZD 27.5 million of savings whilst moderating our strategic growth investments to maintain flexibility and focus on returns. The reset of our cost base was required to mitigate cost and inflationary pressure, and importantly, to responsibly self-fund our strategic growth agenda. It was important to do both at the same time. The cost savings delivered in 2026 were driven for a number of initiatives, including organizational restructuring, store network review, and the reset of businesses in international markets, as I have mentioned.
The Next Level plan initially identified NZD 15 million of the savings target to be reinvested in FY 2026 for growth over the short to medium term. We committed to this being a staged approach to reinvestment, and at the half year, as a result of the equity raise and subsequent rapidly changing geopolitical and consumer market conditions, we reviewed our plans through this stage-gated approach to investment and paused on certain initiatives to focus on near-term ROI. The realized net savings over FY 2026 after reinvestment of NZD 8.7 million allowed us to offset baseline cost inflation on a constant currency basis. Moving to slide 28, which provides a summary of the ongoing fleet optimization program. Again, I'm pleased to report that we've significantly improved the quality of earnings across the entire fleet, and in particular, at Kathmandu.
FY 2026 also completed the launch of four next-generation flagship stores in Sydney for both Rip Curl and Kathmandu, Melbourne, and Kathmandu's hometown of Christchurch, representing the pinnacle experience of our store segmentation strategy. The FY 2027 store plan continues to focus on continued reduction of exposure to lower returning locations and rightsizing the store network, along with improving sales density across the fleet. Just moving now to our FY 2027 trading and outlook. Direct-to-consumer same-store sales, including online year-on-year on a constant currency basis for the first seven weeks from Monday, July 27th to Sunday, September 13th, 2026 in a seasonally non-significant trading period are Kathmandu, +7.4% year-on-year, supported by strong growth in New Zealand and online channels. Rip Curl, +1% year-on-year. Rip Curl brand stores, +4% year-on-year. Ozmosis multi-brand stores, -12.1% year-on-year.
Rip Curl brand stores grew across multiple geographies and online, while Ozmosis multi-brand stores experienced some difficult trading conditions due to some product assortment challenges. In terms of outlook, the group remains focused on delivering continued performance improvement in FY 2027 when compared to prior year. Group FY 2027 guidance is as follows. Sales of between NZD 1.055 billion and NZD 1.075 billion. EBITDA of between NZD 52 million and NZD 55 million. Capital expenditure of between NZD 15 million and NZD 16 million. The Kathmandu sales momentum is expected to continue with seasonally relevant product flow and enablement of online fulfillment. Rip Curl sales are expected to benefit in H1 from the first deliveries of next-gen designed product into the market in time for the Australian peak trade. An Ozmosis remediation plan is currently in place, including the closure of five underperforming stores.
Rip Curl and Oboz wholesale order book is consistent with prior year, with ongoing management within a dynamic shipping environment. Group gross margin expansion is anticipated to benefit from FX hedging already in place and strategic price increases. EBITDA reflects revenue expectations with a further NZD 10 million of annualized cost-saving initiatives already underway to mitigate inflationary pressure. These cost initiatives for FY 2027 were taken to ensure the business maintains its EBITDA growth trajectory in a challenging global consumer operating environment. The group continues to focus on the optimization of its store network, as I've mentioned, as part of the Next Level integrated marketplace strategy. Capital expenditure is reduced as technology projects moderate and targeted store CapEx is prioritized. Depreciation is expected to be in the range of NZD 40 million to NZD 41 million. Lastly, to the business review and the conclusion of that review and its outcomes.
KMD Brands has made significant progress in strengthening and simplifying the group, as you've heard, and the board remains confident that disciplined execution of the Next Level strategy provides a clear pathway to improved performance and shareholder value, as demonstrated by the FY 2026 operating performance. As part of the comprehensive business review initiated in May 2026, the board has considered the group's portfolio, its capital requirements, and a range of potential value creation opportunities. The review was undertaken with independent financial advisory from Deloitte and Barclays, and legal advice from Chapman Tripp. The review was conducted objectively and without a predetermined outcome. The review resulted in actions to simplify the group and enhance its financial flexibility. These include the decisions to invest the group's manufacturing facility in Southeast Asia. The group also tested external interest in Rip Curl's multi-brand retail chain, Ozmosis.
No proposal for Ozmosis emerged that offered greater value than continuing to rationalize the chain and improve the profitability of the remaining store fleet. The review also included a commitment to ongoing cost reduction, as you've heard, through the immediate offshoring of select group shared services. Throughout the review process, the board has received and considered a number of indicative approaches from external parties and has determined that further engagement with a limited number of those parties is appropriate. Consistent with its responsibility to shareholders, the board will assess whether any proposal could deliver greater value than continued execution of the group's Next Level strategy. The approaches are indicative, non-binding and incomplete, and no decision has been made, and there is no certainty that any proposal or transaction will result. This engagement does not change the group's strategy, priorities, or day-to-day focus.
Management remains focused on delivering the FY 2027 Next Level plan, improving profitability, generating free cash flow, and reducing leverage. The board will continue to support the execution of the strategy while carefully assessing any credible alternative that may deliver superior shareholder value and will update the market in accordance with its continuous disclosure obligations. To conclude, in summary, FY 2026 was a year of a turnaround. We made a number of deliberate and meaningful changes across the group, and we expect to see increasing benefits over time from the product, marketing, and capability changes implemented during 2026 as new product ranges, particularly for Rip Curl, begin to impact consumers. Brand storytelling is reset, and we transform to a more modern and agile brand portfolio.
As we move into FY 2027, our focus has immediately shifted from resetting the business to the sustained and relentless execution of our initiatives to create long-term shareholder value. There is still significant work ahead, but the progress achieved during the last 12 months confirms our path forward. With that, I will now conclude and return to the operator, and Carla and I would be pleased to take any questions that you may have.
At this time, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Kieran Carling with Craigs Investment Partners. Please go ahead.
Morning, Brent and Carla. Thanks for the presentation. First question is just on your outlook commentary. Appreciate that you are in the process of closing stores, but at the midpoint of your guidance for 2027, it is about 1% sales growth, down from 5.7% in the second half of 2026. Looking at your Q4 exit run rates by brand, that looks on the conservative side. Can you just run us through what is feeding into that assumption in terms of same-store sales expectations by brand, and make a few comments on what trends you are seeing by geography for Rip Curl?
Yeah, I think. Hi, Kieran, by the way, it is Brent here. When you think about obviously, the performance that we have just posted in FY 2026, I think the confidence that you referred to really comes from the actions that we have already taken, both in terms of delivering those results, but also the impact that we see and assumptions we have made around material improvement in the business as you look into FY 2027. As we just talked about, clearly we have delivered significant underlying EBITDA growth. We do have momentum in trading, as you have outlined. We have already taken action as it relates to NZD 10 million worth of gross cost savings towards the back end of FY 2026. We have some further clarity around margin tailwinds with a pricing strategy in place, and of course, understanding a little more about hedging and the impact there.
I think what I would suggest is that we are confident in our future performance. Clearly, there is significant uncertainty in the macroeconomic environment, and to some degree, that differs by market, and in some cases it remains challenging. From our perspective, we have outperformed the market despite a number of headwinds that we have faced in FY 2026. We believe that with the decisions and changes we have made, particularly around product, store profitability, and a focus on optimization of inventory, that we can continue to deliver that in FY 2027.
I would probably just add, Kieran, keeping it at a relatively high-
Yeah. Sorry, I-
Oh. Kieran, I was just going to give you some clarity.
Yeah, sorry, I do understand that, but your guidance implies just over 1% sales growth, which seems conservative.
Kieran, that's where I was going.
Keen to get your thoughts on where the slowdown will occur.
I guess what I can say is our guidance assumes the consumer environment remains challenging, hence why you're seeing a bit of a moderation in that growth. We obviously report seven weeks, but it's, as we point out, non-seasonal and a small period within the greater scheme of the guidance for the year. You're correct in terms of picking up on some of the drivers around that in terms of the sales line, is also the impact of the store closures, which will obviously impact the top line. And it's our best estimate within that range, given we've also seen the benefit of currency in the 26 results, which we've clearly pointed out, and it's management's estimate across a globally diverse group in terms of our best estimate of the revenue range as a result of the exposure within the different currencies within our portfolio.
Right. So it's clearly a challenging consumer environment still. I guess just another question on your guidance, because I'm trying to triangulate your comments. Based on what you delivered in OpEx level in FY 2026, you did the NZD 27 million of cost out. OpEx still grew by 4.2%. You're targeting cost out of NZD 10 million for the year ahead. But your EBITDA guidance seems to imply quite a significant lift in gross margin for FY 2027. Against a challenging consumer backdrop, can you just help us understand what level of gross margin expansion you're expecting and where that's going to come from?
We haven't specifically guided to that today, but you have picked up correctly, Kieran, that the key drivers within that EBITDA guidance are the sales growth, as you've pointed out. There is, as we've also put within the commentary, additional gross margin expansion assumed through our call-outs with some sourcing initiatives, the FX benefits that we already have in place with our hedge book, and as Brent has referenced, some pricing actions that we've already been putting underway. So they are driving what continues to be our belief in gross margin expansion. Then to the point you made, we come off the back of having delivered cost savings in 26 and have continued to challenge ourselves around that cost base with the further annualization of additional cost savings to get to that EBITDA position.
The other thing I probably would just reinforce is obviously we're getting the full year benefit of store optimization. We're getting the full year benefit of cost savings executed in 2026, which give us a better run rate from that prior year.
Also the full year benefit of pricing decisions made at the half in FY 2026, annualizing in 2027, in addition to other strategic price increases for the full year.
Clearly, inflation continues to be a pressure point, so we make all of these comments around savings in terms of the context of inflationary pressure, which we're continuing to, like everyone is, manage.
Okay. I guess just at an absolute level, are you expecting OpEx to go up or come down over the year ahead, compared to FY 2026?
Well, I think I go back to we've given you the component parts of that. Gross margin expansion is absolutely part of, like we said, that growth trajectory, and obviously OpEx as a function of growing EBITDA is something that we continue to accurately manage.
Right. Okay. Maybe just final question then on your balance sheet. Obviously, you came in slightly ahead of your July guidance, but this time last year, you were steering the market to net debt of under NZD 40 million by year end. I guess, where you've landed and factoring in the equity raise earlier this year, you've missed that original guidance by over NZD 70 million. Can you just help us understand how a miss of that size occurred, and give us a steer on where you see net working capital and debt trending over the year ahead?
I do acknowledge that we have missed that target and that the guidance we also provided in July for working capital to land with net debt is in a particularly dynamic environment for us. We can pull out the component parts, which I've tried to do in the commentary today, and clearly as a percentage of sales, it's more elevated at July 26 than we had anticipated. I guess the component parts of that is that we do continue to be encouraged by what we can see and have called out around inventory quality and our stock turns. But the timing of our payments profile, which you can see within payables, and we've provided a bridge within the cash flow, have driven the delta in terms of that position from what we'd guided to where we landed.
Obviously, we continue to focus on wanting to work towards a lower working capital investment position and supporting more cash generation in 26. And we do believe we've got levers to do that. But to the extent that we've provided guidance, it's very much been around continuing to target. We had reinforced earlier a comment of getting our net debt below 0.5x by the end of 27, and that's what I guess I continue to remain as our target.
Okay. Thank you.
Your next question comes from the line of Paul Koraua with Forsyth Barr. Please go ahead.
Hey, good morning, guys. I might just pick up from where Kieran left off there, and just specifically about that payables balance. I think one of the concerns is, after raising the money, the suppliers shortened those terms so they do not fund the inventory. My question is that payables balance going to be reflected in better margin as you get better pricing by shortening your supplier terms? Or is this a little bit of suppliers not willing to fund the inventory as much anymore?
A balance of both. I go back to reinforcing that our gross margin assumptions within that outlook assumes a benefit pulling through. Flagged both in terms of pricing of our input costs as well as our FX hedge book. I think you have picked up on the component parts of the commentary yourself in the question.
Okay. Then maybe just further on the balance sheet. So, NZD 40 million net debt. I think one of our concerns was around the maturity of the NZD 40 million tranche at the end of this financial year. Considering your working capital swings are quite large in this business, are you still comfortable in how you traverse that over the next 12 months? Could you maybe give us a little bit more color on how that is going to look?
The confirmation is we are comfortable. We continue to work towards, as we have flagged very clearly, that tranche that is going to be maturing at the end of 2027. We obviously also have, as we flagged, the commentary around a further capacity that was unlocked as a result of going through the review with our lenders. I guess I will reiterate, we continue to have the support of our lenders to continue to fund our working capital position. I am really pleased to be able to provide the update today, which we worked hard to do with our lenders in terms of being able to give comfort and confidence that that facility had been unlocked, because we have flagged when we first announced there was a component of it that was not.
We have gone through that process and we have obviously, at the other side of it, got the full NZD 205 million of capacity. We are still ultimately, though, we are targeting towards de-levering. I think at this point I can just reaffirm we continue to feel comfortable with the covenants that we have negotiated. Also acknowledging we do have seasonality in our business and we do have right now a fairly dynamic moving environment when it comes to just the timing of inventory leaving the ports, which we have flagged. But the business is, it is not one lever. We are working on multiple levers here, and we continue to remain very confident in both being able to manage within our facility and continue to meet our covenants.
Awesome. Thank you. Then maybe just on the tariff refunds that you guys received, NZD 8 million. That seemed like it was a surprise that had come in before the balance date end, sort of reflected in that debt position being lower. But it was obviously booked through the COGS line. Is the read that the actual underlying EBITDA here was slightly worse than what you guys were looking at? If you book that NZD 8 million through COGS.
It was a bit of a balance when it came to. When I say it is not a surprise, we had obviously disclosed what we were anticipating in terms of the tariff refund.
The team had been very proactive in lodging claims to be at the front of the queue.
But given it is a new process and one that no one had undertaken, we had to work on a conservative basis of not knowing when those funds would land. We flagged that we were going to be going through that process and claiming it, but the timing of it was out of our control, and it was pleasingly received all within the close of the fiscal period. But that was not within our control, and it was quite an unusual process. We had no other basis to estimate when it would land.
The only other thing I would add there is just-
Your guidance is-
Sorry, I was just going to say, the only other thing I would add there is obviously it is a dynamic market with the introduction of tariffs, the uncertainty around tariffs. The team at both Oboz and at Rip Curl, as it relates to the United States, took immediate action and made a number of decisions to offset any of the specific impact of those tariffs as best as possible. Obviously, Carla has spoken to the timing of that. The pleasing thing from my perspective was the demand that you saw in the fiscal 2026, even with increased price as one component of offsetting a potential tariff, given the uncertainty of the situation. Obviously, everybody was in the same position and no one had really clear ideas about what that might do to demand.
Both for Oboz and Rip Curl, we continued to see strong demand even after that action had been taken.
Yeah. No, that makes sense. I guess, the point was, in July when you set the guidance, whether you had baked in any tariff refund in that number in your EBITDA guidance or if the full year result was supported by that million dollars you got refunded.
We had assumed a portion of it, but we couldn't assume the fullest extent. We also, as I highlighted through the commentary today, had some particularly strong trading conditions in the last two weeks, which again, was not within the guidance range that we had assumed.
For Kathmandu?
Yes.
Okay. Awesome. Thank you. Yeah. Okay. Maybe just last one, on the strategic review outcome. Now, obviously, there's a few offers in there that you guys have had that you are looking into a little bit further. There was the comment around the board is going to decide whether the value it provides is greater than continuing on executing on the current plan. I guess the question is, at what point, if at all, does the market get informed about what these offers might look like? Noting that the market might have a slightly different opinion on what the fair value for this business is to maybe what the board does.
Yeah, I think, as we've disclosed this morning, and we're not going to go into more detail around it. Yes, there has been indicative opportunity come to the board, and that's a process that's ongoing. Of course, at a particular time when the board feels it appropriate, aligned with continuous disclosure, we'll update the market. But for today, there's no further color that we can provide around specificity within those conversations.
Okay. That's all good. Thanks, guys. And congratulations on an improved result.
Your final question on the phone comes from Harrison Elliott with Jarden. Please go ahead.
Oh, hi. Just to talk a bit about the Appendix 7. I think you had your FY 2028 targets on there. Given FY 2025 was 4% EBITDA margin, then 5% in FY 2026 was 4%, and if I take the midpoint of your FY 2020s guidance, I get to 5%. What are you guys thinking when we go to that 10% target for EBITDA margin, if it's going 4, 5, 10? Is that a bit of a jump?
I think we continue to remain focused on what we've provided in terms of 2027 guidance, but clearly we're not walking away from this three-year ambition. It continues to be something that we're targeting, and we're looking to continue to get momentum from 2027 into 2028 in an effort to work towards those targets. To the extent we get a little bit further into 2027, we'll continue to update the market. I guess I go back to these are intentionally within that timeframe, and we're continuing to guide specifically in 2027 with more guidance and building out towards that 2028 view.
The one thing I would add, and I think we've tried to be as transparent as possible in terms of performance. Specifically, you've seen Kathmandu, who are probably 12- 18 months ahead of implementing some of the significant change than Rip Curl. Number one, it's pleasing to see the continued momentum of Kathmandu. What we really need to do is make sure that we also have a healthy Rip Curl and a healthy Oboz adding fuel to that contribution. A number of the significant changes that were made in Rip Curl throughout FY 2026, the consumer's not yet seen any of that product come to market until literally the last few weeks. What we do expect with that brand reset, the decisions made around a sharper, younger, fresher product range, creating distinctive point of view from a sea of sameness in surf.
We believe that will only accelerate as we get into the back half of FY 2027. The collective ambition of the brand portfolio together, we still think, the consumer has yet to see the full benefit of the decisions that we've made in FY 2026.
Okay. Thank you.
Your final question comes from the line of Marcus Curley with UBS. Please go ahead.
Good morning. Just a couple from me. Could you just confirm, just on the gross margin guidance for an improvement this year, that's off the basis of the reported number? I think, yeah, the reported number included the tariff refund benefit. So you're basing it off that number rather than excluding that tariff refund.
We are. Yes. When it comes to Rip Curl, we absolutely are. In the case of Oboz, which is a lot more material to their gross margin, we do see that as more of a structural one-off. I guess our guidance continues to be referenced-
Just to be clear-
Sorry, did you want to go ahead?
Would you say, in the guidance for improved gross margin, that is off the reported gross margin that you had for the year?
No. We have adjusted for the impact of tariffs as being considered structural. As in being one-off, not being repeated in a subsequent year. But we have other levers outside of the tariff refund, which continues to give us the confidence in the statement that on the reported basis, we will get gross margin improvement in the current period, FY 2027.
Okay. The guidance includes gross margin at FY 2027 above 57.7.
On the reported basis. Yes.
Yes. Could you just give us an update of where you are sitting with tariffs at the moment?
All been completely refunded.
How does that compare to last year?
It is all received. It is a one-time period in 2026, and it has all been received and banked in 2026. The cash has physically all been received. We have no outstanding payments.
Are you paying any tariffs at the moment?
Sorry, I am talking about the tariff refunds. We obviously continue to work within a tariff regime, yes. But I thought, sorry, I must have misunderstood your question. I was referencing the tariff refunds.
No, I've moved on from tariff refunds to talk about the current tariff situation. When you look at what you're paying today on tariffs, is that ahead of what you paid before the refunds in FY 2026?
Yes.
Sorry, just trying to. Could you maybe repeat the question?
Okay. Just so that.
We continue to take tariff refunds.
I'm just trying to understand.
I'm sorry. We can take.
Is there a tariff for your gross margin this year and your guidance, is there a tariff headwind on what you actually paid? Forget about the refunds.
Yes. Yes, there is, having had tariff refunds received in the previous period.
Yes. We pay tariffs like any other business who are bringing product into the United States, which as you know, can change quite quickly.
Okay. Because the U.S. has obviously changed some of their tariffs over. You are assuming that the existing tariffs continue, and despite that, you are expecting an improvement in gross margin above 57.7% on a reported basis in FY 2027?
Yes, that is correct. Because I think I have confirmed in terms of some of those gross margin expansion levers. It is a combination of, so acknowledging your tariff point, it is also a combination of input sourcing initiatives, FX benefits, and pricing actions which feed into that commentary around gross margin.
And of course, the tariffs are different rates for different country of manufacturer. Across Rip Curl and Oboz, there are different countries of manufacture for different lines of product at different tariff rates that then obviously are applied into the U.S. market.
Okay. Then just, I know that you've got limited ability to talk about the approaches that you are working with. Can you put any time frames around any likely decision? Would shareholders expect to hear something by the end of the calendar year?
No, we're not going to put a time frame on it. I think it's about what is the best way to extract value for the business for shareholders. I don't want to put a deadline on that. Needless to say, as we've referenced today, there are a number of inbound indicative offers, and the board is actively considering those.
Okay. Thank you.
There are no more questions via the phone.
We have received a question through the online platform from Richard Wilkins. Have we been paying our suppliers on time, or are we missing payments like David Jones? Can you elaborate on the changes to payment terms that you have made with selective suppliers?
Yes. We clearly are paying our suppliers on time, and we are not missing payments like David Jones, just to be clear. It is a very complex suite of payment terms across many tens of suppliers in our supply chain that we and the team have done a good job in terms of negotiating new terms with, all in an effort to continue to optimize our business.
Further question from Richard Wilkins. Regarding the impairments in FY 2026, have the carrying value of the Rip Curl and Kathmandu brands been written down to the average of the offers received from these businesses? There can be no better assessment of the value of the brands than what you have received in the business review. If not, how have the impairments been calculated?
Richard, I can answer this one. If you go to our annual report, you will actually find some substantial disclosures around how we calculate recoverable amount and our value in use calculation for the purposes of impairment. To your point, it is not writing it to a point of offer, but it is absolutely a judgment based on what the management and board, and our auditors put together around our future cash flow position. We do triangulate to things like I referenced in my commentary, such as market capitalization and the premium to market cap that might be implied from that recoverable amount. We do look as part of that process with our auditors around market multiples, but ultimately we are not goal seeking to something around offers.
It is more a fairly robust process that continues to be done by all companies to assess recoverable amount, but it does take in market inputs as part of that assessment.
Final online question from Richard. "Will any offers for the Rip Curl business be put to the shareholders before any potential divestment? What is the absolute minimum offer that needs to be received for any potential offer to be considered?
I think the comment I would make there is the board clearly has an obligation to engage with shareholders before any such decision. If it gets to that place and the board considers an offer to represent fair value, and on behalf of shareholders, of course, within which it acts, there will be engagement with shareholders at that point in time.
Further online question from Samathi. "I would like to understand from management team on when we are expecting to reach NPAT positive based on current transformations underway."
I am probably just going to refer back to the best we can give you as our guidance is around what we have put in market today for FY 2027. You can continue to look towards our broader three-year ambition that has been published as part of Investor Day. They continue to become the best markers of our continued moving towards both EBITDA expansion, but ultimately net profit after tax as well.
We have no further online questions.
Okay. No further questions. Thank you everyone for your attendance today. We appreciate it. We hope you are as optimistic as we are about the future given our results in FY 2026 in the first year of the execution of our Next Level strategy. We will end the call here. Thank you.
This concludes today's call. You may disconnect.