Shares in ASX small-cap stock Step One Clothing Ltd (ASX: STP) have fallen 12% on Wednesday (at the time of writing) after the online underwear retailer announced a statutory loss for the first half of FY 2026, weighed down by a large inventory provision and weaker sales.
The result marks a sharp reversal from the prior corresponding period and underscores the challenges facing the business as it executes a strategic reset.
Image source: Getty Images
What did Step One report?
Step One reported revenue of $36.3 million for the six months to 31 December 2025, down 24.5% on the prior corresponding period.
The company posted an EBITDA loss of $10 million, compared to a profit of $11.2 million a year earlier, whilst statutory NPAT was a loss after tax of $8.5 million, versus a profit of $8.2 million in 1H25.
Gross margin fell sharply to 43%, down from 78% in the prior period, reflecting the inventory write-down.
What else do investors need to know?
The key driver of the result was the $10.9 million provision against aged and slow-moving inventory, despite promotional activity.
Accounting rules require inventory to be valued on the balance sheet at the lower of cost or net realisable value, and so this inventory write-down implies that the company's legacy stock can likely only be sold at prices well below cost, despite clearance activity such as Black Friday promotions.
Encouragingly, the company ended the half with $24 million in cash and term deposits, whilst total liabilities were $8.4 million.
No interim dividend was declared. Dividends are expected to recommence once retained earnings return to a positive balance.
What did management say?
Founder and CEO Greg Taylor said sales in late 2025 were below expectations due to slower-than-expected clearance of legacy inventory.
He described the result as reinforcing the urgency of the company's "reset program," which includes moderating discounting, focusing on product innovation, and restoring brand perception.
Given the transition phase, management is not providing full-year earnings guidance.
Share price snapshot
Prior to today's sell-off, Step One shares had already been under pressure amid slowing growth and margin compression. Today's 12% drop reflects investor concern about the struggle to move inventory, along with declining revenue and margin contraction.
With the inventory provision now taken and the balance sheet still solid, investors will be watching closely to see whether the reset can stabilise sales and restore profitability in the second half.
Step One shares are down 80% over the past 12 months.
