As consumers become more discerning, brands have proactively embraced sustainability as their value proposition where heightened demand in sustainable and organic clothing reflects ethical priorities.
Innerwear brand Step One (ASX: STP) has harnessed the momentum of sustainability through its range of organically grown and ethically manufactured innerwear for different body types. This strategic focus also transformed its financial trajectory. After incurring a $3 million statutory loss in FY22, Step One rebounded by achieving a net profit of $8.6 million in FY23.
During FY23, Step One focused on boosting profitability rather than growth. The Company’s Statutory EBITDA soared by 4393.9% to reach $12m compared to $3m loss in FY22. This reflects the effort of Step One’s concentration on profitability amid a challenging trading environment due to inflationary pressure and decreased discretionary spending, where revenue decreased by 9.7% to $65.2m from $72.2m in FY22.
Profitability reflects the continuation of costs (such as COGS, distribution and transaction fees) incurred in FY22, along with a reduction in advertising spend and improving efficiency.
Commenting on the FY23 results, Step One Founder and CEO Greg Taylor said, “We continue to build our position as a leading brand for sustainable and high-quality innerwear products for both men and women.”
“During the second half, we explored product adjacency opportunities within the women’s segment, successfully launching a new Bikini Brief line that has resonated well with our customers. We continue to refine and adapt our women’s strategy, now focusing on personalised communication with her through a new website and marketing optimisation.”
Step One commits to implement careful inventory management, considering its higher inventory levels. As of 30 June 2023, the Company managed to reduce around $2.1m worth of inventory value to $23.3m as opposed to $25.4 year-on-year (YoY).
Although the current inventory level has been beneficial in addressing shipping delays and enhancing supply chains for its US and UK locations, the Company aims to decrease current inventory to maintain flexibility in accommodating future product releases.
Having over 1,358,000 customers worldwide with 257,000 new customers added in FY23, the Company’s average order value (AOV) position increased by 19.3% from $74.9m in FY22 to $89.4m in FY23 as a greater emphasis was placed on upselling and bundling, leading to a 14.7% increase in Average Order Quantity (AOQ) to 4.4 units per order. Orders by returning customers made up 63% of total orders, compared to 60% in FY22.
Focused on profitability, Step One reduced advertising costs by 27.5% to $23.3m by leveraging organic social media content to grow customer databases. Although website visits decreased by 10.8%, a strong 4.4% conversion rate was maintained. Moreover, successful sales events like Black Friday and the Mid-Year Sale have contributed 22% of revenue whilst acquiring customers through events like Click Frenzy.
The Company has also initiated entry into indirect channels like Amazon and other retailers to build a strong online presence and larger membership databases.
Step One holds a strong financial position with $38.3m in closing cash and no debt thanks to operating cost reductions and favourable cash outflows, and will be paying out a dividend of $0.05 per share. This reflects confidence in the ability to continue generating profit and cash to fund the business.
In FY24, Step One aims to expand customer reach, partnerships, product range, innovation, sales channels, and customer experience.
“I remain steadfast in my belief in our products and my commitment to continue building this business. Our purpose is clear – to enrich lives through daily comfort. 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”, CEO Taylor concluded.
Given economic uncertainty, no FY24 guidance is provided across jurisdictions.
Clara is a Business Reporter for The Sentiment.
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