KMD Brands Limited (KMD.NZ) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the KMD Brands Full Year Results presentation. Just a word before we hand over to Brent from KMD. Unfortunately, due to a technical difficulty with the phone system this morning, the phone lines are not available for this call. So just repeating that the phones are not available for the call this morning. [Operator Instructions] But yes, the phones are not available, and we'll hand over to Brent now.

Okay. Good morning, everyone, and thank you for joining us for today's presentation of KMD Brands financial results for the FY '25 financial year. My name is Brent Scrimshaw, and I'm the CEO of the group, and I'm joined on the call today by Carla Webb-Sear, our Group Chief Financial Officer; and Ben Washington, our Deputy 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 New Zealand dollars. So today, I'm going to begin with an introduction of our 'Next Level' turnaround strategy, along with the group's key achievements in the past year. Carla will then discuss the group's financial and brand results in more detail. And I'll then take you through the key components of the 'Next Level' strategy moving forward before finishing with the trading update and our outlook for the year ahead. So I'll start with my observation about what really excites me about the opportunities for this group of brands. And I'll do that along with some, I think, honest observations of the challenges we continue to face. Drawing your attention to Slide 4 now. Our brands design quality products that are built for purpose, focusing on outdoor lifestyle and adventure activities with deep product ranges that provide technical foundation and diversity across seasons. Each of our brands continues to serve consumer needs for quality, activity-based technical apparel and equipment. And the combination of our brand portfolio means the group benefits from significant diversification in terms of geographic footprint, channels to market and seasonality profile. At the same time, the synergies mean the group can continue to leverage its scale in terms of product development and manufacturing, marketing, systems and funding to name a few. On to Slide 5, and a reminder that we're truly a global active outdoor lifestyle group, operating over 300 owned stores with our brands sold in over 8,000 locations globally. Australasia is our biggest market with over $600 million in annual sales, 82% of which is in Australia. North America generates over $200 million of sales annually with Europe over $100 million and Asia and South America being our other key global markets. Now since joining the business as Group CEO a few months ago, I've been excited by the significant growth opportunities for our business. But realistically, I've also formed a hyperrealistic view, as I call it, on the key challenges we face, both from the outside in and from the inside out. And whilst we've pursued many new opportunities as a group over the past few years, I know that if we truly understand the critical success factors that will drive a step change in our consumer connection and therefore, our financial result, and we align our businesses behind that strategy, we'll be well positioned for future success. The good news is we're starting from a strong position in terms of our brand strength and the way consumers think about and the consumer sentiment for our brands. What's also impressed me is the deep commitment from our people in each of our businesses around the world. The strength of alignment and passion that our people share for our brands is like nothing I've seen in 30 years in these types of brand-led businesses. But if we're truly honest, our product development has at times lacked relevance, design leadership and a relentless flow of fresh stories at retail. And our store portfolio across brands lacks product differentiation and clear store format segmentation. Market volatility notwithstanding, I am encouraged, however, by market growth in our key apparel segments around the world. So leveraging our industry leadership position, if we can truly create innovative, relevant and distinctive commercial product stories that provide a unique competitive point of differentiation from the sea of sameness that I see, I'm confident our new plan will be successful. So moving to Slide 7 and the KMD Brands next level turnaround strategy is specifically designed to address these market conditions and our observations that I've just outlined. We talked in detail about our 'Next Level' reset strategy 2 weeks ago at our Investor Day. And for those who did not attend, I would encourage you to check out the KMD Brands Investor Day presentation and webcast on our Investor Relations website. In short, there are 3 key strategic priorities that make up our 'Next Level' focus, which are the fundamental anchor points for our future success. Number one is a brand and product-led offense, recognizing that consumers seek deeper and more emotional connection with brands and products in a sometimes crowded marketplace. We aim to lead with the strength of our brands and leverage that and bring to market a fresh flow of iconic, distinctive products with a renewed emphasis and focus on appropriate speed and style. Point two, in terms of data-driven processes and new tools that will enable our teams to simplify an overly complex business and make better data-informed decisions. And three is to execute a relentless focus on how we think about driving sustainable profit growth with clear financial guardrails guiding our growth investment. Now I'll talk in more detail about 'Next Level' strategy later in this morning's presentation. But for now, let's talk more about the results of the last 12 months. Moving on to Slide 8 and a summary of the key FY '25 financial results for the group. Global market conditions continue to be mixed. However, we were able to grow sales by 1% above last year with an improved trend in the direct-to-consumer channel, which includes online. Group gross margin decreased by 1.9% of sales year-on-year to 56.5% as we focused on maintaining market share with increased promotional intensity and a deliberate strategy to clear Asian excess inventory in the marketplace, particularly in Q4. The profit result is clearly not where we want it to be. Now while sales grew slightly, the combination of a decrease in gross margin and continued operating cost pressure meant that underlying EBITDA decreased to $17.7 million. And after accounting for one-off noncash impairment of Oboz intangible assets, the group's net loss after tax was $93.6 million. And on an underlying basis, I should say, the group's net loss was $28.3 million. In a challenging trading environment, we again demonstrated our ability to manage the controllables. We prioritized cash flow, reducing inventory and net working capital year-on-year. Pleasingly, net working capital ended $40.6 million lower than July last year, a significant achievement. And as a result, the group's balance sheet position is stable with $52.8 million in net debt, lower than the July balances of the last 2 years and with funding headroom of approximately $235 million. Moving to Slide 9. Operationally, our brands have already demonstrated some progress against the key drivers in our 'Next Level' strategy, but we know we must do better. Our brands are delivering iconic product to market. For example, at Rip Curl, who launched the new Surf, GPS3 Surf and Tide watch in April, allowing surface to plan, track, compare and share every session. The all-new Search GPS iOS app enabled surf tracking for users of the Apple Watch as well. Oboz released a limited edition of its iconic Sawtooth shoe in collaboration with creative studio in the United States, Blackbird Spyplane, which sold out in minutes and captured the attention of a new group of fashion-forward customers. In addition, our product development teams have also been recognized globally for pushing the boundaries of product innovation. Rip Curl won an ISPO award for the Mirage 3D-printed boardshort and Kathmandu won 2 ISPO awards in 2024 for the Feather Flight, a best-in-class iconic and innovative solution to lightweight carry-on luggage and another for the women's Seeker short, which uses fabric made from capturing carbon emissions from steel mills blended with recycled materials. Our integrated marketplace strategy will deliver a coherent and holistic mix of segmented store formats in the right geographies, providing consumers with a tailored and relevant brand and product experience. A great example of this is the new Rip Curl Bondi Women's store. This store has been designed to deliver a fresh and tailored brand experience for female surfers and beachgoers. And in addition, opening just last week, right next door is a new Rip Curl men's and kids concept. So Rip Curl now owns an elevated and iconic precinct overlooking one of the world's most famous beaches. Kathmandu have recently completed the development of the new flagship concept store of the future with lease agreements now finalized for 3 key locations with the first new format stores scheduled to launch in October this year. We believe our brands are materially under-penetrated in digital and e-commerce, and we're accelerating our focus and investment to accelerate this digital growth. Our Shopify platform has shown fantastic UX results in the Kathmandu business so far and you'll see us doubling down on digital marketing efforts when we launch in Rip Curl and Oboz over the coming months. The group and each of our brands continue to be B Corp certified and demonstrate leadership in sustainable innovation particularly through the use of new sustainable materials in product development and the implementation of new reuse or recycling initiatives. So that's my introduction. And so now I'd like to introduce Carla Webb-Sear. Carla has recently joined our executive team as our Group CFO, and she'll be taking you through a more detailed overview of the FY '25 results.

Thanks, Brent. I'll now talk to Slide 11 and walk through the group's profit and loss for FY '25. Our statutory results include 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 Software-as-a-Service accounting, notional amortization of customer relationships, impairment and onerous contracts. Statutory EBITDA was $50.5 million for the year. On an underlying like-for-like basis, EBITDA was $17.7 million, a decrease from $50 million last year. Global market conditions have been mixed. However, we were able to slightly grow sales by 1% above last year, with the best results in the direct-to-consumer channel, which includes online. The full year sales results of 1% growth above last year improved slightly from 0.5% in the first half of the year. By brand, the Kathmandu sales result was impacted by unseasonably warm weather in the third quarter, which contributed to decreased insulation sales. Rip Curl's direct-to-consumer sales outperformed the wholesale channel with pleasing flagship retail store sales growth in key global regions. Oboz wholesale sales continued an improving trend in the second half of FY '25, supported by new style launches. While we grew sales slightly, the combination of a decrease in gross margin and continued operating cost pressure impacted FY '25 profitability. Gross margin decreased 190 basis points below last year to 56.5% as we focused on maintaining market share with increased promotional intensity and a highly competitive trading environment. I note here that prior period gross margin has been restated with the adjustment identified through an accounting system change at the group's wetsuit manufacturer with no impact on EBITDA or net profit. Operating expenses are being tightly managed for facing global cost pressure, increasing by 3.9% year-on-year. Within this, we continue to support brand development, in particular, Kathmandu's brand marketing. The FY '25 result includes a $45.4 million impairment of Oboz intangible assets. This one-off noncash item does not impact the day-to-day operations of the business and as such, has been excluded from underlying results. Drawing your attention to Slide 12 and looking more closely at quarterly sales trends over the last 2 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. For Rip Curl, direct-to-consumer retail store and online sales channels led the improved sales trend with strong flagship store sales growth in key global regions, supported by new store openings. Wholesale sales improved by 1.5% year-on-year in the second half of FY '25, supported by closeout sales for end-of-line styles. For Kathmandu, the unseasonally warm weather during the third quarter of FY '25 impacted insulation product category sales. Kathmandu pleasingly returned to sales growth of 2.5% year-on-year in the key fourth quarter with enhanced promotional activity, a return to cooler weather and the launch of the Shopify e-commerce platform. For Oboz, wholesale sales trends improved in the second half of FY '25. The third quarter of FY '25 included strong preseason orders for new season styles ahead of the North American summer hiking season, accelerating customer demand. In the fourth quarter, we did see in-season reorders soften following the announcement of U.S. tariffs. Moving to Slide 13. Group online sales performance has been a highlight in FY '25 with all 3 brands achieving strong online sales growth year-on-year, reinforcing the growth opportunity. Our brands have worked hard to improve the consumer experience in online journey, and the results have been improved conversion of traffic to purchases. A few key sales highlights for each brand. Rip Curl delivered a record $41.7 million in online sales, an increase of over 10% year-on-year. Online sales now comprise 12.5% of direct-to-consumer sales. Kathmandu delivered $52.1 million online growing by more than 9% year-on-year. Online is now 14.5% of direct-to-consumer sales. Oboz delivered a record $8.8 million in online sales, an 18.3% increase on last year, with strong sales results in key promotional periods. The online channel remains a key priority area for the group. Following a successful launch in Kathmandu in the fourth quarter of FY '25, we are now implementing Shopify, the e-commerce platform in Rip Curl and Oboz in the first half of FY '26. Moving to our balance sheet. We continue to maintain a stable balance sheet position with low net debt, significant funding headroom and improved inventory levels. In a challenging trading environment, our net working capital efficiency has been a key focus. Pleasingly, group inventory reduced for the third successive year as inventory positions continue to reduce towards optimal levels. Reduced inventory balance was achieved despite higher goods in transit year-on-year at balance date. The year-on-year increase in current trade and other payables at the end of July 2025 includes the increased goods in transit balance plus some improvement in supplier payment terms. Turning to Slide 15. You can see that the 31 July net debt balance was lower than both of the previous 2 years with significant funding headroom of approximately $235 million at balance date. In recent trading update, we guided to a net debt of approximately $70 million, and it's pleasing to report that we have closed out the year with a lower net debt position of $52.8 million. The group continues to have a strong active working relationship and support for Cement Banking Syndicate and remains compliant with all banking covenants at 31 July 2025. Over the long term, our leverage ratio target remains less than 0.5x net debt to EBITDA. Reducing the leverage ratio in FY '26 through both improved profitability and further reduction of debt year-on-year remains a high priority. Moving to Slide 16. We prioritize cash flow in a challenging trading environment with positive operating cash flow achieved by reducing inventory and net working capital year-on-year. As a result of operating performance and challenging market conditions, the directors have not declared a final dividend. Moving to Slide 17. And moving on to the brands. Each of our brands continue to operate in challenging global market with mixed consumer sentiment, cautious wholesale customers and global cost pressure. In this environment, our brand has worked hard to in line on sales with a focus on maintaining market share. We'll now turn to Slide 18. With Rip Curl. Rip Curl's total sales were up 2.1% for the full financial year, improving from our first half result that was fairly flat. The direct-to-consumer channel outperformed wholesale, with online sales being a highlight. Online delivered a record $41.7 million and increased 10.2% year-on-year. Direct-to-consumer total sales, including online, grew by 4.6% year-on-year, achieving strong flagship store sales across key global regions of Australia, Hawaii, Europe and South America and supported by store openings. On a same-store constant exchange rate basis, D2C sales increased by 1.2%. Wholesale sales decreased by 2.9% for the full financial year, which was an improvement from the negative 7.9% result in the first half. During the second half of the year, wholesale sales grew by 1.5% year-on-year, supported by closeout sales for end-of-line stockpiles. Rip Curl's gross margin decreased by 90 basis points year-on-year with direct-to-consumer channel mix helping to offset the impacts of increased promotional intensity and clearance of the end-of-line styles. Operating expenses continue to be a key focus for management, given global cost pressure and an evolving channel mix. Moving to Slide 19. Kathmandu total sales increased by 0.2% year-on-year in FY '25, impacted significantly by 8.8% year-on-year decrease in the third quarter. Sales returned to 2.5% positive growth in the key fourth quarter winter trading period with enhanced promotional activity, a return to cooler weather and the successful launch of the Shopify e-commerce platform. Online sales results are a highlight for '25, delivering $52.1 million and growing by 9.3% year-on-year. Sales in Kathmandu's largest market, Australia, increased by 0.2% year-on-year, while New Zealand sales decreased 2.3% in a more challenging consumer environment. On a same-store basis, including online, Kathmandu sales decreased by 0.2% year-on-year. In terms of product mix, both product categories achieved sales growth, including Rainwear, Fleece, Baselayer, Knits and Footwear. This partially decreased reliance on insulation product category -- sorry, this partially decreased the reliance on insulation, which achieved lower sales year-on-year, especially during that warmer third quarter. Kathmandu's gross margin decreased 300 basis points year-on-year with increased promotional intensity and a focus on maintaining market share in a highly competitive trading environment. Operating expense were tightly managed, while facing store labor and rent cost pressure and also included $2 million incremental brand marketing investment year-on-year. Finishing up on Slide 20 for Oboz. Oboz total sales was down 3.5% for the full financial year, improving from negative 6.3% in the first half. Oboz continued to benefit from our commitment to diversified sales channels with strong online growth in key promotional periods. Oboz delivered a record $8.8 million in online sales, an 18.3% increase on last year. Wholesale sales were down 5.8% for the full financial year, improving from negative 10.6% in the first half. Wholesale sales trends improved in the second half with the launch of new season styles ahead of the North American summer hiking season. Following the announcement of U.S. tariffs, we did see in-season reorders soften. However, this has not been a material impact on the FY '25 results. Gross margin decreased by 380 basis points as specific clearance of end-of-line inventory contributed to a lower gross margin result year-on-year. Operating expenses were lower than last year due to lower sales volumes. We continue to invest in key areas of brand, product and online to support Oboz' long-term growth objectives. To finish, I'll point out that Kathmandu segment includes sales of Oboz products through the Kathmandu Australia and New Zealand store network at full vertical gross margin. These sales grew from $5.3 million last year to $7.1 million in FY '25. I'll now hand back to Brent.

Okay. Thanks, Carla. And so now I'd like to provide some more context and detail on our next level transformation strategy. On to Slide 22. Next Level is a reset plan designed to specifically address what we acknowledge has been unacceptable performance. It's time to reset expectations of our brands, of our business and of ourselves. We've set ambitious cross-portfolio goals and a robust strategy to drive growth and further leverage our strong brands to their full potential in a highly competitive global market. And whilst growth is what we're committed to delivering, it's also crystal clear that at the same time, we need to immediately reset our cost base to deliver enhanced profitability. And at the same time, provide the opportunity to self-fund any growth investments. Lastly, as we navigate towards success, it's critical we also hold ourselves accountable against a set of disciplined financial guardrails, and I'll explain more on this shortly. On to Slide 23. We're already executing against the 'Next Level' strategy. These 3 strategic priorities are the fundamental anchor points of our success that I referred to earlier this morning. Number one, to succeed with the brand and product-led offense, it's critical we supercharge our product development, delivering iconic and distinctive product franchises, accelerated go-to-market capability and fresh flow at retail. To complement our existing technical product range, it's also critical that we add speed and style to our go-to-market capability as soon as possible. Data-driven processes and AI tools will enable our teams to simplify a complex business and make better data-led decisions. There will be a continued focus on working capital optimization and investment, supply chain and marketing spend allocation and efficiency. And thirdly, ensure that we have a laser-sharp focus on profitability only releasing cost investments in line with our financial guardrails that must deliver sustainable profitable growth. Moving on now to Slide 24, and this slide summarizes all the components of our 'Next Level' strategy. Whilst we've not changed our purpose or vision, we have reset our strategic priorities, our growth drivers and importantly, the behaviors that will get us there. We've enabled our plan with a clear step change in both thinking and obsession with execution in both the brands and functions. So for us and the team, this is what success must look like over the next few years. On Slides 25 and 26, we've summarized a clear set of priority strategic initiatives that apply both across the group and within each of our individual brands. Firstly, at the group level, our shared functions are growth enablers for each of our brands and must provide functional expertise and the continued efficiency that our brands can in turn leverage for growth. We've set clear financial guardrails for our brands to now operate within, always with a focus on driving sustainable profit growth. We see opportunities to utilize data-driven process and tools that will increase efficiencies in the areas of working capital investment and supply chain, helping to deleverage our focus on our balance sheet, and enabling our brands to grow. On Slide 26, we are making strategic shifts in all 3 of our brands. These are not incremental shifts tinkering around the edges or making small trade-offs. These are robust, bold strategic shifts, specifically designed to drive a different outcome. For Rip Curl, we're very excited to reset towards a more youthful Rip Curl brand for the next generation contemporizing the relevancy of our brand equity in the search and redefining what it can mean to a whole new generation of consumers. We aim to grow beyond core surf to core surf plus beach. While still serving core surfers that will never go away, we can always address additional clear market capacity with relevant product, along with the right new distribution channels to address a significant but untapped growth that we believe beach consumers who connect with the culture of surf represent. Lastly, as you know, there is significant uncertainty in the U.S. marketplace. And in response, we've already made responsible decisions to protect our profitability in this geography. For Kathmandu, product distinction and creating separation are fundamental to Kathmandu's success. Also critical to success is the way that our product stories show up in our newly segmented store portfolio. I think it's also a responsible and a clear decision that we've made to reset our international strategy to be both digitally and now distributor-led immediately reducing cost. For Oboz within the footwear industry, the trial category is hot right now, and the locations of Bozeman and Yellowstone, the home of Oboz, are also hot right now. So we're accelerating our product creation agenda to impact the market much faster and earlier than was our original plan. At the same time, we aim to introduce the brand with the help of new Vault and UltraRemain style-based products to a whole new group of consumers in new fashion forward channels. On Slide 27, beyond the strategic intent of our next level plan, I want to be clear about our financial expectations. We've already commenced a $25 million reset of our cost base to mitigate cost pressure and importantly, to self-fund any strategic growth agenda. This cost reset will be driven from initiatives such as the current organizational restructure and store network review already completed. The 'Next Level' plan identifies $15 million of these savings to be reinvested in FY '26 to drive growth over the short to medium term. This will be a staged approach to reinvestment in growth initiatives, such as product, new store formats and performance marketing, only reallocating resources to fuel the areas across the portfolio that deliver the greatest return. This deliberately provides our plans with intended flexibility with a stage-gated approach to any investment based on the growth results to be delivered. We anticipate realizing net savings over the next 12 months after reinvestment of $10 million, allowing us to offset baseline cost inflation. On Slide 28, I'll now walk you through the areas of financial focus for the next 3 years. We're aware that trading conditions have been challenging over the past 2 years, and we've seen our EBITDA margin under continued pressure, while our leverage has increased. Next level sets out a financial plan with our ambition to achieve a 10% EBITDA margin over the next 3 years. We believe this is achievable by improving our gross margin over time to approximately 60% and lowering our operating expense to 50% of sales or below. Improving top line sales momentum is by far the most important potential earnings driver given the high degree of operating leverage inherent in the business. And that being said, our focus over the next 3 years will also continue to be improving margins, lowering costs and as mentioned already, a continued focus on managing working capital. Gross margin pressure will remain in the short term, while we deliberately improve inventory composition to make way for new product launches. Our plans, however, build back towards a 60% gross margin in the medium term. We recognize investments in brands, product and marketing are all important to support top line and sales growth. Inflation continues to drive increases in people, property and other costs. However, our plan is to continue to work on areas within our cost base to continue to reduce cost. The ambition over 3 years is based on an underlying assumption of sales growth across the group. As top line sales growth builds will realize more incremental benefits on profitability through improved operational leverage. And finally, I'd like to recognize on this slide the hard work done by our teams to closely manage net working capital through the challenging economic conditions of the last 2 years. Our balance sheet is stable, thanks to the reduction in net working capital during FY '25, but we're not done yet. So that's our 3-year financial ambition, and I'll finish today with a trading update and an outlook for FY '26. On Slide 30, I have a brief update of our trading performance for the start of the new financial year. Total August sales across all brands and channels were plus 10.5% above last year. In a seasonally nonsignificant trading period for both key brands, direct-to-consumer sales for the first seven full weeks ending 14th of September were as follows: Kathmandu total sales grew year-on-year by plus 19.4%. On a same-store basis, sales were up plus 22% year-on-year with targeted promotional intensity in a competitive trading environment. Kathmandu total gross profit dollars for the first seven full weeks to 14 September were plus 11% above the equivalent period last year. Rip Curl total direct-to-consumer sales were minus 1.2% below last year, but on a same-store basis, were up plus 1.5% year-on-year. Wholesale trends are improving, but of course, uncertainty remains in key global marketplaces and forward orders and in-season buying from key accounts does support an improving wholesale trend. And now for our outlook for FY '26. Group gross margin in the first half of FY '26 is targeted at slightly above the second half of FY '25 as strategic promotional activity further improves our inventory composition ahead of new season product launches. The impact of the recently announced U.S. tariffs are embedded in the Oboz gross margin, which is expected to return to FY '25 levels in the second half of FY '26. Group operating expenses are planned to be broadly flat before management incentives in FY '26 from the FY '25 expense base of $541.6 million, reflecting cost savings and ongoing investment to drive next-level growth opportunities. The recently completed restructure of the business is designed to deliver immediate cost efficiency against the cost reset target of $25 million. We expect to deliver annualized cost savings from the organizational restructure of $5 million with a one-off restructuring charge of $2 million. We expect EBITDA margin expansion in the coming year with stronger margin expansion in the second half of FY '26. Net working capital remains a focus for all brands as mentioned today. The group is targeting net debt below $40 million at the end of July 2026 compared to $52.8 million at the end of July 2025. Following our recent announcement of 21 future store closures across the group, we expect to close 14 of these stores in FY '26. However, we've committed to opening 6 new stores, including 3 new Kathmandu flagship concept stores in the first half of FY '26, and we continue to pursue other opportunities in line with our new integrated marketplace and store segmentation strategy. Capital expenditure is targeted to be in the range of $25 million to $30 million. So that concludes the formal part of today's presentation, and I want to thank everybody on the call for taking the time to join us. So now I'd like to open up the call for questions.

We do have a few questions coming through. First question is from Paul Koraua. Can you talk to whether New Zealand $25 million cost out is enough given the size of your cost base and $15 million being reinvested and at profitability levels?

Yes. Thank you. Yes, it's Brent here. I -- we believe it is the right amount. We clearly want to focus on an immediate cost base reduction as mentioned this morning with regards to organizational restructure and other cost base initiatives across the group. But I think it's important to recognize that growth is the quickest way for us to create leverage in our business. And so therefore, it's important to make strategic and targeted investments through the gating process I outlined today that enable us to sow the seeds of future growth towards the back half of '26 and into FY '27.

Okay. Next question from Guy Hooper. Tariff impact in FY '25 was around $1 million. What is your expected annualized unmitigated and mitigated impact for FY '26?

Carla here, Guy. Thanks for the question. We have ring-fenced for FY '25, but I think in regards to FY '26, we're not giving a specific steer because as you can appreciate, tariffs remain a fairly fluid area to be managing. So we're working towards focusing on upstream with the suppliers to improve our landed costs. And we're also working on repricing items in alignment with some of our competitors in the market. In the DTC channels, we've got a bit more flexibility with pricing, and it might take a season or 2 to get reset for wholesale pricing back to historical levels, but we remain cognizant that the U.S. economy has a level of uncertainty. And I guess we continue to take measures to try and reduce risk in that region.

Okay. Next question is from Bianca Murthy. Thanks for the update. In terms of inventory, could you talk about the inventory aging profile across the brands?

Yes. Thanks, Bianca. We've worked really hard to focus on clearing not only excess but more importantly, aged inventories. So it's critical for us. We do a number of things. One is make sure we cleanse the market of any aging inventory. And I think you've seen the result of the focus on inventory over the last quarter. Importantly, obviously, from a marketplace perspective, there's still some gross margin pressure as it relates to both the competitive marketplace as well as a continued focus for us to get our inventories clean and to clean the market. And most importantly, it's important for us to do that as we believe that with the new and fresh product and more innovative product replacing that clearance product in the market will be a driver of future growth, but also margin expansion over time.

Okay. Next question from Tom Renaud. Interesting result with plenty to look ahead to just on the announcement that 14 identified stores will close in FY '26. Are you able to confirm in which territories these will be? And how many particularly interested in New Zealand?

I could probably just add a comment there. So it's a mix of New Zealand, Australia and the U.S. But if we're focusing more in region, it's 3 closing in New Zealand and 2 in opening. Apologies, there's a little bit of ins and outs there. So 3 closing in New Zealand and 2 opening.

The one thing I would add is just to repeat the relentless focus on store profitability. We have been through a very robust process that evaluates the entire fleet across the group with a focus on achieving what we believe to be acceptable profitability hurdles for each of our stores. And that's what's both underpin the review, leading to some store closures, of course. But as we talked about today, also a store segmentation strategy for Kathmandu that has, again, announced both at Investor Day and today, the opening of new stores for Kathmandu with a particular focus on flagship stores that we believe represent really the first of what the best of the Kathmandu brand from a product and innovation and store experience can represent. So we certainly won't be tolerating running loss-making stores or stores that aren't performing up to expectations and hence, a robust focus on our store portfolio.

Okay. Next question from T. Chung. In your strategy presentation, you mentioned asset sales in the cards. As Oboz has been a persistent drag and unnecessary distraction to the group since day 1, are you reviewing its strategic fit.

Well, I think we talked about this on our Investor Day. And just to be really clear, we talked a bit about always, as a management team, and I'm sure as a Board considering the disposal of any noncore assets that don't provide a competitive advantage to our brands assuming, of course, there was a potential for appropriate market value. So just to be clear, we're not talking about brands, we're talking about considering as any business would, the disposal of noncore assets that don't provide a competitive advantage to the group.

Okay. Next question is also from Mr. T. Chung. Considering years of poor sales, the large overly spacious Kathmandu store format designed for preliminary high footfall now seems out of line with the market reality, making the stores look cavernous with a vibe of product sparseness and more importantly, poor store productivity. Do you have any plan to downsize the square footage of the Kathmandu stores to improve store productivity and operating costs?

Yes. As part of our store segmentation strategy that, as mentioned earlier, relentless focus on profitability, but also average sales per square foot from the right stores in the right locations with the right product assortment and there's both working group now and product differentiation by store relevant to its geography, but also on store formats. So as we rationalize the fleet, and sharpen our focus on profitability, you could expect to see the shape and size of formats over time if and when appropriate, to be -- to fall in line with the new segmentation strategy, which may lead to some change in store format over a period of time.

Okay. This is the last current question from Mr. T. Chung. Can you share what you are doing about Rip Curl's EBITDA and EBIT margins, which have been on a persistent decline in trend for many years. What is your target EBITDA margin for this business?

Well, we can acknowledge that as we've outlined in that Rep Curl slide, we've historically been at higher levels in that FY '21 and FY '22 period with EBITDA margin. Probably just reference back to we've talked as part of our next level plans at Investor Day with our cost reset to make sure that, that's focused around Rip Curl's profitability. And that's included as we've mentioned, the review of store profitability in the U.S. as part of that plan. Obviously, tariffs remain a fluid area that we've highlighted, we're continuing to manage. But as you look to the medium term, we'd be anticipating we'll be getting back to those historic levels of 10% EBITDA in the margin plus.

Okay. No more questions.

Okay. If there's no more questions, I'd just like to thank everybody again for their time this morning, and we'll conclude the call. Thank you.