Step One Clothing (ASX:STP) shares plunge 56% on guidance update

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Step One Clothing (ASX:STP) shares plunge 56% on guidance update

Step One Clothing Limited (ASX:STP)
Image source: © Skypixel | Megapixl.com

Highlights

  • Step One Clothing has lowered FY22 expected proforma EBITDA from its previous guidance.
  • The online, direct-to-consumer innerwear brand did not meet the expected US and UK revenue growth.
  • Higher-than-expected costs are among the factors driving the revised FY22 guidance.

Australian innerwear company Step One Clothing Limited (ASX:STP) has downgraded its guidance for the full year ending on 30 June 2022 amid challenges with international expansion. The retail company has highlighted that increasing costs would likely affect its future revenue stream.

Post the announcement, STP shares crashed by over 56% on the ASX, almost reaching their 52-week low of AU$0.205 per share. The shares closed the day’s trade at AU$0.210 apiece on 16 May 2022. 

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What is the updated guidance shared by Step One?

The ASX-listed online, direct-to-consumer innerwear brand anticipates sales revenue growth of 15% to 20% in FY22. Earlier, the FY22 sales revenue growth was forecast at 21% to 25%. Similarly, it has downgraded its proforma EBITDA from AU$15 million to AU$7 to AU$8.5 million. 

Image source: © 2022 Kalkine Media®, Data source: company update

Why has Step One downgraded its FY22 guidance?

The revenue growth across the UK and the USA has not occurred at the rate expected by Step One’s management. The women’s range also did not perform as per the expectations and failed to match the daily sales levels experienced in the months immediately following its launch.

The company has also highlighted higher-than-expected customer acquisition costs in the USA. The digital marketing competition has also weighed heavy on the company. The advertising and marketing costs exceed the expectations in both the UK and the USA. Step One said that the marketing and advertising costs would be around 46% of revenue.

Moreover, logistics costs have surged, owing to the Russia-Ukraine war and Covid-19 related restrictions in China.

What will the company do to improve its performance?

Step One plans to expand its product range as per the customer’s demand. The company intends to increase brand awareness and customer engagement while building its operational and marketing capabilities.

To ensure growth in the USA, the innerwear brand aims at increasing brand awareness via brand collaboration with selected influencers and athletes and consumer-led PR activities. In addition to this, the company plans to increase engagement through local marketing specialists.

For expanding in the UK, the company is focused on creating localised content, premium brand positioning, establishing public relations with consumers and introducing loyalty programs to reduce the reliance on paid digital marketing.

Suggested reading: Which factors are fuelling Renovator Store’s popularity among Aussies           

Share performance of Step One

Since the ASX listing in November last year, the share price of Step One has dipped by 92%. The year-to-date decline in the share price stood at 86%, including today’s fall. In the last five trading sessions, the share price has crashed by 61%.

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