Consumer cyclical

‘No chafe’ underwear retailer guides to droopy earnings: Shares sold down to 15% of IPO price

Mon 16 May 22, 1:41pm (AEST)

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Key Points

  • Step One guides to sales revenue growth of 15-20% compared to previous guidance of 21-25%
  • The share price rallied as high as $3.00 late November 2021
  • Management remains confident in the company's future multi-year growth prospects

Investors received a masterclass in what happens to companies that overpromise and underdeliver, with recently listed Step One (ASX: STP) now trading 85% lower than its November IPO listing price, following news that the online underwear retailer will miss its sales and earnings guidance.

Within a dismal trading update this morning, Step One – which sells bamboo fibre ‘no chafe’ underwear – advised the market to expect sales revenue growth of 15-20% compared to previous guidance of 21-25%.

As a result, proforma earnings is revised to $7-$8.5m from $15m.

Having sold its shares to retail investors at $1.53 each during its IPO early November, after raising around $82m, the share price rallied as high as $3.00 later in the month but has been losing ground ever since.

Based on today's share price ($0.215) the stock's current market cap is $39.8m.

Higher costs & poor revenue growth

In addition to higher marketing and advertising costs, management noted within today’s trading update that profits had also been hit by a blowout in logistics costs.

While continued strong contribution margins from Australian operations underpins revenue growth, much of the company’s earnings miscue is being attributed to lack-lustre earnings offshore.

Management flagged lower than expected revenue growth in the US and the UK, with tougher-than-expected trading conditions impacting consumer confidence.

While the women's range was fully restocked mid-April, the company noted that the level of daily sales initially experienced in the months immediately following its launch have since fallen away.

Specific factors impacting profitability include:

  • USA is experiencing higher than expected customer acquisition costs and will return a loss exceeding $3.0m in FY22

  • Marketing and advertising costs are higher than expected, in both the US and UK, and will be approximately 46% of revenue due to increased digital marketing competition and lower than expected ROAS (Return on Ad Spend)

  • Factory to warehouse logistics costs have increased, with recent cost inflation linked to the sustained covid lockdown in China and the war in Ukraine

  • Gross profit margin for FY22 is expected to be closer to FY21 levels, despite recent increases in selling prices

Longer term

Despite poor revenue growth, management remains confident in its future multi-year growth prospects, and growth initiatives including:

  • The continued introduction of new products in line with an innerwear focus

  • Plans to expand customer reach and brand awareness in international markets

  • Increased cadence of product design and focus on dropping limited editions around key annual events in the US

  • A focus on increased premium brand positioning through above-the-line channels and strong focus on consumer PR in the UK

  • The company is now selling some core products on Amazon within key markets to drive brand visibility and support customer acquisition

Step One’s CEO Greg Taylor doesn’t believe the headwinds currently facing international expansion are insurmountable and reminds investors of the company's strong history in offshore markets.

“We had a track record of delivering in international markets, but we are now a much more substantial business, and our focus is on building a strong platform, with the right infrastructure to support sustainable international growth,” said Taylor.

“We’ve continued to make operational progress… this will continue into FY23 as we build momentum around the brand internationally.”


Consensus does not cover this stock.

Based on Morningstar’s fair value of $1.08, the stock appears to be undervalued.

Step One is currently trading with 1042.9% upside to Morgans’ (23/02/22) target piece of $2.40.

However, following today’s update watch for changes to the broker’s outlook later this week.


The last six months have not been kind to Step One's share price.

Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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