Step One Clothing: 1H22 result - Comfort and support

About the author:

Alexander Mees
Author name:
By Alexander Mees
Job title:
Co-Head of Research and Senior Analyst
Date posted:
23 February 2022, 7:00 AM
Sectors Covered:
Gaming and Retail

  • Step One Clothing (ASX:STP) has reaffirmed its guidance for FY22 after delivering a 1H22 result that met expectations.
  • The launch of the women’s line has been successful and the replenishment of stocks later in the second half will, we believe, be met with good growth in sales.
  • We reiterate our ADD rating, regarding STP as heavily oversold.


STP’s maiden interim result was in line with expectations. Sales were $38.1m (MorgansF: $38.1m) and EBITDA $7.4m (MorgansF: $7.7m).

STP reaffirmed its FY22 guidance for sales growth of 21-25% (MorgansF: 23.3%) with pro forma EBITDA of $15m (MorgansF: $15.1m).


Launch of the women’s range has been ‘incredibly successful’.

STP launched its women’s line in mid-January. It sold 50,000 units in the first month (which we estimate represents sales of around $1.3m) and recruited 12,000 new customers in the first two weeks.

Although a small shipment has subsequently partially replenished available stocks in Australia, the product will not be fully restocked until a (larger) shipment arrives in the UK and Australia in April/May.

In our opinion, STP was sensible not to over-invest initially in a new product that may not have resonated with its target market, but the very positive customer reaction gives us comfort that sales will now ramp significantly in the last two months of 2H22 and into FY23. With new colours, sizes and a shorter leg design in the works, we think this will be a major driver of STP’s growth in the future.

UK growth set to pick up in time.

As flagged in December, 1H22 revenue in the UK grew by 2.8% yoy, below initial expectations. This reflected some logistical challenges, notably after the peak sales period of Black Friday, that impacted the timeliness of delivery to customers.

There is a lingering effect on customer demand as negative comments on social media take time to fade.

Although STP expects the UK to remain subdued by its historic standards over the next few months, it believes its strategy of focusing on domestic influencers, tweaking pack sizes and unit prices, and diversifying its 3PL partners will allow growth to return to the rates the market might have expected and see website conversion rates bounce back.

Advertising and marketing to focus increasingly on local influencers.

STP says its influencer strategy has taken a bit longer to take off in both the UK and the US but it expects the strategy to gain momentum in 2H22. We expect to see the company partner with influencers, especially from the world of sport, with strong local followings.

Its recent partnership with Joe Marler in the UK is an example. In our opinion, this may also represent an adaptation to more effective advertising strategies in the context of changes to Apple’s iOS privacy rules.

STP confirms the impact on customer recruitment from Apple’s changes are not material as it is an established business, though they are ‘not a positive’.

Forecast and valuation update

There are no changes to our earnings estimates for FY22. Our EBITDA estimate remains $15.1m, in line with guidance of c.$15m. There are also no changes to our estimates for FY23. Our EBITDA estimate for that year remains $24.7m.

Our target price falls from 11% from (login to view), in line with the decline in the ASX Consumer Discretionary index since we last updated our target price.

Investment view

We see STP as oversold following the sector rotation away from e-commerce stocks as we believe it remains well-placed to achieve its reaffirmed revenue and EBITDA guidance for the year.

With a successful launch of the women’s range behind it, and the launch of a sports line to come later in the second half, we see prospects for good growth to continue in Australia and to ultimately resume in the UK.

This will be complemented by an initial contribution from the US, into which STP launched in October 2021. With an FY23F P/E of 11.5x and EV/EBITDA of 5.8x, our recommendation remains ADD.


More than half of our forecast sales growth to FY24 is driven by expansion in the US market.

Unsuccessful execution of this growth strategy is a key risk to our investment case. Another key risk is failure to restore growth rates in the UK.

Find out more

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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